Banks decrease reserves for real estate and credit card loans

According to a report from SNL, reserve levels at banks continued to decrease during the 3rd quarter, according to a new schedule in which financial institutions with assets of more than $1 billion must break down ALLL reserves. Real estate reserves dropped the most, from $68.28 billion at the end of the second quarter to $62.36 billion, a decline of 8.67 percent.

Predictably, the largest banks had the greatest effect on reducing reserve levels, reducing more than $6 billion in total reserves held against loan losses. Banks with $50 billion+ in assets reduced reserves held against real estate loans by nearly $5.5 billion.

In total, financial institutions with more than $1 billion in assets had slightly less than $128 billion in reserves, or 1.88 percent of their total loans evaluated for impairment as of September 30th. Reserves were 2.01 percent of loans at the close of the second quarter, and 2.12 percent of loans at the close of the first quarter. Additionally, real estate loan reserve coverage fell from 2.19 percent to 1.97 percent from end of June to end of September.

Reserves for credit card loans also decreased slightly, again with the largest banks contributing the most to this decline. Interestingly, banks with assets valued between $10-50 million increased their credit card loan reserves by nearly $250 million. However, banks with assets in excess of $50 billion decreased their reserves 22 basis points from the previous quarter, closing at 4.42 percent.

Finally, total reserves at large banks also fell from the previous quarter. The 20 largest banks calculated by reserves had $92.26 billion in reserve, down 15 basis points from the end of the second quarter to close at 2.08 percent of all loans held. 

For more information on justifying alterations in your ALLL calculations, download the whitepaper titled: How to Support a Change to the ALLL Reserve